David Blackburn

Brown’s new dividing line ignores that banks are our route to salvation

Brown’s new dividing line ignores that banks are our route to salvation
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Gordon Brown and Alistair Darling will launch their umpteenth fight back today by talking tough on banks and bonuses. They hope to prove the Conservatives are interested solely in “helping their rich friends”. The Times has the details:

‘The Chancellor will tell the party conference in Brighton that legislation to be introduced in the next few weeks will scrap automatic year-after-year bonuses and stop executives getting payouts unless they can prove they are deserved. Bonuses will be deferred over a period so that they can be clawed back if they are not warranted by long-term performance.’

This is not a dividing line. The Conservatives intend to curb short term-bonus culture, and the Conservatives will surely point out that the government have been bargaining with banks for a year and didn’t take the opportunity to abolish reward for failure. There should be no reward for being wise after the event.

Brown’s bullish rhetoric that the bonus clampdown will be the “toughest in the world” is unlikely to be replicated by the Conservatives. It is short-sighted. The public finances are crippled and investment in financial services is mammoth: Britain needs extremely profitable banks. Therefore, attracting and retaining business and talent is essential - bonuses and effective but loose regulation are the means to that end. Majority public ownership of several banks is a tremendous opportunity: it's the future’s North Sea oil. As Maurice Saatchi writes in today’s Times:

‘This capitalist discipline will have an excellent effect all round. If Stephen Hester of RBS, gets his £9 million bonus, I get my £9 billion profit, which I take in the form of a tax redemption. In place of mutual suspicion and mistrust, we now have a common bond of interest. Instead of despising his greed, I have much respect for his ability to make me rich. Suddenly I wish him well.’

Gordon Brown should be wary of the annihilation of reactionary centre left parties in last night’s German election, before he gets tough on bankers.